E.ON is understood to be at an advanced stage of negotiations with a consortia of the Abu Dhabi Investment Authority, Canada Pension Fund and Macquarie for its distribution interests, the second largest in the UK.

They cover customers and areas previously served before electricity privatisation by the Midlands and East Midlands companies.

A successful sale would mean Britain's two biggest distribution networks will have changed hands in recent months. EDF, the French state-controlled group, sold its business to Li Ka Shing, the richest man in Hong Kong, for a higher than expected £5.8bn.

Ministers are said to be uneasy about the pace of developments in the sector as they prepare to produce proposals for far reaching changes in the electricity market and are banking heavily on EDF and E.ON to spearhead the revival of nuclear power in Britain.

Both companies have expressed concern about the absence of incentives to justify the heavy investment load.

The Government has ruled out direct subsidies to encourage construction, although it has indicated it is ready to provide "backdoor" support through a floor on carbon prices but EDF and E.ON feel it does not go far enough.

E.ON, which has attempted to raise its UK profile with sponsorship that includes the FA Cup, has already caused concern in government quarters by pulling out of a £1bn competition to develop "clean" coal technology through carbon capture and storage at its Kingsnorth plant in Kent and transferring work to Holland.

The company has been cutting costs and selling assets to reduce debt levels. Johannes Teyssen, E.ON's chief executive, is expected to announce further sell-offs when he releases details of a strategic plan and debt reduction programme on Wednesday.